Accounting Methods ? Cash and Accrual

When starting a business, you have to determine the method you are going to use for accounting and paying taxes. The two choices are the cash method and the accrual method.

Cash Method

If you are looking for simplicity, the cash method is probably your best accounting choice. Generally, income and deductions can be claimed when payment is actually received or made. This is best shown with an example.

I open a small business and have to order business cards and stationary. I receive the products and pay the invoice on November 18, 2005. Under the cash method, I can deduct the cost on my 2005 tax return.

Some businesses are restricted from using the cash method. C corporations may only use the cash method if they have less than $5 million in gross revenues for a particular year. Professional Service Corporations can use the cash method without limit, while farming corporations can due so if gross revenues are less than $25 million. Tax shelters are prohibited from using the cash method.

Accrual Method

The Accrual Method of accounting is a bit more complex. Under this method, the focus in on the date the expense is incurred, not paid. Although this may seem a small difference, it can play havoc with your books and piece of mind.

Using our previous example, assume I order business cards and stationary on the December 18, 2005. I receive the products on December 30th, but don't pay the invoice until January 20, 2006. When can the expense be claimed? It depends on when economic performance occurred.

Generally, economic performance occurs when goods or services are provided to you. In the above example, economic performance would arguably occur when the business cards and stationary were delivered with the invoice on December 30th. Thus, I would be able to deduct the expense for the 2005 tax year.

In Closing

As you can see, the cash method is the easier of the two accounting methods. To determine the best method for your business, speak with a tax professional.

Richard Chapo is with http://www.businesstaxrecovery.com - recovering overpaid taxes for small businesses. Visit our article page - http://www.businesstaxrecovery.com - to read more tax articles.

Wood Dale Chicago prom limo .. Lockport Chicago limo O’Hare
In The News:

Stay up to date on the latest AI technology advancements and learn about the challenges and opportunities AI presents
Internet browsers are useful, but they can be dangerous. Clicking on malicious links can direct you to dangerous websites that steal information or infect your device.
Apple's latest iOS update introduces advanced artificial intelligence capabilities, which may be capturing and analyzing sensitive information.
Breach site confirmed 56,904,909 Hot Topic users' data leaked online. Tech expert Kurt “CyberGuy" Knutsson says the company's silence makes matters even worse.
Tech expert Kurt “CyberGuy" Knutsson discusses how an innovative Easy-Way kit turns standard strollers electric, simplifying navigation for parents.
Tech expert Kurt “CyberGuy" Knutsson talks about T-Mobile being hacked in broad cyberattack on global phone and internet companies.
Tech expert Kurt “CyberGuy" Knutsson shows you how to add, customize and manage widgets for quick access to apps and info from your iPhone home screen.
Wrong Google searches can not only compromise your device and personal data. They can also bring law enforcement to your doorstep. Hackers are targeting Google searches.
China's Shanghai Kepler Robotics has developed a new humanoid robot that can carry up to 35 pounds per hand for commercial applications across various industries
Checking your hearing has gotten easier with the new hearing test feature in AirPods Pro 2. You can take reliable hearing tests using your iPhone or iPad.
Stay up to date on the latest AI technology advancements and learn about the challenges and opportunities AI presents now and for the future.
Kurt "CyberGuy" Knutsson explains how a VPN — virtual private network — works and how running it can slow down the operation of your device.
The WalkON Suit F1, an exoskeleton developed to help people with disabilities, can actually walk over to a person in a wheelchair, solving a major problem.
ClickFix, a new scam targeting computer users, is on the rise in the U.S. The scam prompts its targets to click on a link to fix a problem.
Skydweller is the world's largest unmanned solar-powered aircraft that can stay airborne for weeks, and even months, without refueling.
The U.S. government said it is investigating after People's Republic of China hackers targeted commercial telecommunications service providers in the U.S.
Stay up to date on the latest AI technology advancements and learn about the challenges and opportunities AI presents now and for the future.
Scammers are using increasingly sophisticated ways to lure unsuspecting victims, and some are impersonating an email help desk or support team.
You can unsend or edit your iMessages with the latest iOS updates. Kurt the CyberGuy explains how you can save yourself some potential embarrassment.
Kurt “CyberGuy" Knutsson says there’s been a rise in cybercriminal services using hacked police and government emails to send subpoenas and data requests to U.S. companies.
Kurt “CyberGuy" Knutsson discusses how Axiom Space and luxury designer Prada are collaborating on NASA's Artemis III spacesuit design.
Voice assistants may cause confusion across devices. Tech expert Kurt “CyberGuy" Knutsson offers some solutions to fix it.
Shameless scammers trick veterans into giving personal info or cash. Tech expert Kurt “CyberGuy" Knutsson explores five common scams.
Tech expert Kurt “CyberGuy" Knutsson helps you honor our heroes with these powerful podcasts, audiobooks and documentaries this Veterans Day.

Small Business Opportunities Magazine Business

A Small Business Opportunities Magazine is one of the new... Read More

Pressure Washing at Golf Courses

There are many potential niches for pressure washing companies that... Read More

Look Out for that Great Accountant

There are many factors to be considered when you are... Read More

The Key to Small Business Growth? Buyer Alignment

Unfortunately for all buyers, each selling organization and their individual... Read More

Breaking The Chains!

Everyday, customers and business owners are bombarded with billboards, logos,... Read More

Concrete Cleaning Discussed at World of Concrete Expo 03

If you are in the pressure washing business and are... Read More

Dynamics of Daylight Savings Time on Service Businesses in the United States

The Dynamics of Daylight Savings Time changes the way we... Read More

Small Business Operators - 7 Reasons You Should Change Your Accountant

A recent survey showed that only 28.7% of small business... Read More

The Workers? Compensation Situation in this Country is Nuts, Arnold in CA Takes Action

The Workers' Compensation situation in this country is unbelievable. Why,... Read More

What is Business Process Automation?

Business Process Automation or BPA for short. This was a... Read More

Small Businesses You Can Start in Automotive

There are many choices when thinking about a small business... Read More

Janitorial Cleaning Service: Getting Started

A janitorial cleaning service is one of the best businesses... Read More

Temporary Staffing Agency: How to Start

The temporary staffing industry continues to expand, with yearly double-digit... Read More

From Birth to Death

Your product is dying. With the same inevitability that we... Read More

Auto Detailers and Competitive Aspects of Automobile Detailing

There are both fixed and mobile detailers. Consumers often will... Read More

Franchising VS Business Opportunity; What is the Difference?

The modern Franchise business model and the much different business... Read More

There Are No Dumb Business Questions, Not!

Q: I'm curious. What is the dumbest business question you've... Read More

Discover How You Can Start Making Your Small Business Dream Come True

As a teenager I worked for my father's small business.... Read More

Is Your Business Property Safe and Secure?

Security Professionals provide the products and services necessary to create... Read More

Small Business Spoiler - Procrastination

One of the most common issues that comes up for... Read More

One Of The Best New Business Opportunities May Be Right In Your Home - A New Daycare Business

The day care industry is expanding. There are now more... Read More

Your Small Business Suggestion Box

A suggestion box is a really good idea for your... Read More

Buying a Business

Start thinking about buying an established business if you want... Read More

Mobile Car and Truck Washing Vehicle Placement

To maximum potential profits and dollars in a mobile washing... Read More

Home Based Franchise; What About Future Expansion?

As a franchisor I am always asked by new and... Read More

Antigo wedding limo ..